Christopher Whalen: Fed Is Wasting Its QE Ammo

The Federal Reserve is throwing away the benefits of quantitative easing (QE) because government regulations are blunting the impact of the Fed’s ultra-loose monetary policies, according to Christopher Whalen, executive vice president and managing director of Carrington Investment Services.

In fact, the federal reform legislation is discouraging banks from making all but the least risky mortgage loans, he told Yahoo.

Whalen said government regulation is stifling lending to the point that estimates for new mortgage loan originations have slumped from $1.7 trillion in 2012 to $1.4 trillion in 2013.

The impact of QE is actually beginning to drive deflation in the U.S. economy, Whalen told Yahoo. In addition, QE is discouraging savers and punishing the elderly by keeping interesting rates so low.

“There was a time when QE in terms of the net effects early on was a benefit … but now we're at the point where QE is really starting to hurt savers particularly, and I think that’s a drag on the economy,” Whalen explained

“We’ve put so much friction in the system, to expect a classical recovery is almost unreasonable,” he noted.

Whalen called for the Fed to raise interest rates slightly in order to get assets re-priced to more attractive levels.

The Wall Street Journal predicted bond yields will go up again if pending data supports a growth outlook.

“In this case, the Federal Reserve could start pulling back on buying Treasury bonds before the end of this year, which would remove a main support for bond bulls in holding down bond yields,” The Journal said.

The Federal Reserve is throwing away the benefits of quantitative easing (QE) because government regulations are blunting the impact of the Fed’s ultra-loose monetary policies, according to Christopher Whalen, executive vice president and managing director of Carrington Investment Services.